Spyglass Resources’ share slide disappoints

CEO Tom Buchanan said he’s disappointed and perplexed by the stock market’s reaction to newly created Spyglass Resources.

Photographed by:Mikael Kjellstrom (Kjellstr?m), Calgary Herald

CALGARY — A three-way merger of Calgary junior oil and gas companies was to have created a dividend-paying small intermediate that would appeal to yield-hungry investors.

But the market has refused to hold up its side of the story since shareholders voted on March 27.

After hitting $2.57 in early April, shares in newly created Spyglass Resources Corp. have plunged as low as $1.75 and closed Monday at $2.00, down two cents.

Chief executive Tom Buchanan said in an interview he’s disappointed and perplexed by the performance.

“I think we’ve delivered to the market what we said we would be on a pro forma basis,” he said. “There are no surprises on production or debt and cash flow-wise, we’ve got a very reasonable expectation this year. We’ve set up a capital program of $60 million for the remainder of the year.”

Buchanan said debt levels will be close to three times cash flow this year but will drop to less than two times next year as the company sells non-core Saskatchewan assets it is now quietly marketing.

He said the integration of the former Pace Oil & Gas Ltd., AvenEx Energy Corp. and Charger Energy Corp. has gone “seamlessly,” adding that the company now has 108 employees, two fewer than Pace had on its own prior to the merger, and will save $10 million per year.

Some financial analysts who covered Pace did not continue with Spyglass — a survey of four who still do shows they have an average 12-month price target of about $3, although that ranges from $2 to $3.50.

Analyst Jeremy McCrae of AltaCorp Capital said Monday the company’s debt level is the biggest concern weighing on its stock and doubts remain about its ability to grow production while paying a dividend.

Earlier this month, Spyglass reported first-quarter pro forma production of 17,000 barrels of oil equivalent per day, about 49 per cent oil and liquids. It noted net debt of about $300 million.

The merger, proposed in December, had been opposed vigorously by Vancouver-based Nova Bancorp Securities Ltd., a minority Pace shareholder, who criticized the sustainability of its dividend, the quality of the sales process by Pace and the financial case for the merger.

The companies twice delayed voting on the deal, then put it on hold for a month to consider alternatives, then lowered the proposed dividend to 2.25 cents per month due to lower commodity price forecasts.

In the end, Pace shareholders voted 69.7 per cent in favour, barely more than the 66.6 per cent required.

The day of the vote, Pace closed at $3.01, AvenEx reached $2.36, and Charger ended at 42 cents.

Shareholders exchanged their stock on the basis of one Spyglass share for each AvenEx share, 1.3 Spyglass shares for each Pace share and 0.18 Spyglass shares for each Charger Class A share.